LAFAYETTE INVESTMENT CLUB02/19/10
TODAY IN INVESTMENT CLUB Current Events Buy Presentation on AMSC (by Jeromie
Ballreich) Short Selling MARKET MADNESS TV Show: Wall Street Warriors
CURRENT EVENTS Initial claims for state unemployment
benefits ↑ Producer Price Index ↑ due to energy
prices U.S Mortgage rates below 5% Philly Business Activity Index rose to
17.2% Fed raises emergency loan rate 0.75%
from 0.5% Strong earning reports for HP
DJIA AND S&P500
BUY RECOMMENDATION:AMERICAN SUPERCONDUCTOR (AMSC)
Jeromie BallreichLafayette Investment ClubFebruary 19, 2010
OVERVIEW (PART 1) Ticker Symbol: AMSC 52 week range: 11.66-43.95 Market Cap: $1.4 Billion Recent Financial Results (quarterly)
Revenue: $80.7 million (95% increase) GAAP: $5.2 MM, EPS: .11 Margins: 37.5 compared to 23.2 No Debt, $100+ MM in Cash
OVERVIEW (PART 2) 3 Areas of Focus:
Wind Energy (Turbine design, components, grid connections)
Power Systems (Grid components motors) Superconductors (wires)
INVESTMENT THESIS AMSC pursues a “Qualcomm” business
model with Wind Energy Provides turbine designs in return for
royalty and agreement to use AMSC components
Benefit is scalability, high margins, and low capital
THESIS (CONT.) AMSC Licensees includes many
Chinese industrials such as Sinovel (#1 Wind company in China, Top #5 in World)
As licensees begin turbine production, AMSC generates high margin $$$
Wind energy=Jobs, Energy security
THESIS (CONT.) More licensees to increase/begin
production next 2 years, with more licensees expected
EXTRA Benefit: Overlap with other AMSC business
THESIS Sweet Spot in opportunity R&D ` Commercialization Use of DCF valuation “breaks down”
Too many unknowns, tend to be conservative
$80 million range for next year sales (analysts)
Raising estimates/outlook
THESIS EPS $.65 (2010) and $1.20
(2011)=floor for stock New wind contracts, grid news (LS
Cable), partnerships can drive stock price
Execution can get analysts “excited” about superconductor prospects
RISKS Most revenue comes from Sinovel China exposure Macroeconomic risks Failure to execute Technology edge
BUY
250 shares 75 shares none
SHORT SELLING Involves selling shares you do not
presently own Typically borrowed Strategy used to profit from downward
price movement
EXAMPLE Suppose XYZ is trading at $100/share You think it will drop to $50 You borrow 100 shares of XYZ, sell
them at $100 XYZ drops to $50, you buy shares back
and return them Profit = $100*100-$50*100=$5,000
CAVEATS You must maintain minimum “margin” If your account goes under this, broker
can take action Must pay dividend if short position
opened while dividend paid
